The decision concerning the Banking Union should await further clarifications

8 October 2014

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The Danish Bankers Association is generally in favor of the intentions of a banking union in Europe. The Banking Union aims to reduce the risk of financial instability by establishing a single European supervisory authority and a single European resolution authority for distressed credit institutions. This will help contribute to a solid foundation for the internal market for financial services, and it will further contribute to make the conditions of competition more uniform in favor of Danish companies and customers.

Nevertheless, the Danish Bankers Association assesses that, despite of the stated advantages, there are several elements of uncertainty, which imply that the decision concerning Danish participation in the Banking Union should await further clarification of these.

“The harmonization initiatives in the Banking Union are in line with our point of view, that the Danish banks should operate under the same conditions as the companies that they are in competition with. However, there are a number of circumstances, where it is still unclear, which implications it can have for the Danish banks, and thereby also for the Danish society,” says director of the Danish Bankers Association, Jørgen A. Horwitz.

For example, the supervisory tasks and the actual supervisory function have been markedly changed with a number of new sets of rules. It makes it difficult to decide how the new regime will affect Denmark and our special characteristics, including the mortgage credit. Furthermore, it is necessary to follow the macroeconomic situation in Europe in the coming years. In the short run, it is of course crucial to make a thorough evaluation of the quality of the participating banks and subsequently a thorough follow-up, so we avoid paying the bill twice in Denmark.

Jørgen A. Horwitz emphasizes that it is a critical factor for the Danish participation in the Banking Union that the financial stability in Denmark increases thereby, and it is still difficult to assess – not least due to the complexity of the number of initiatives both separately and in the way the initiatives work together.

“Unfortunately, it is not possible to consider it as a checklist, where we can just tick off single elements and hence be able to say yes or no to a banking union. We need to follow the development and gain experiences from the Banking Union, when it has been put to work properly. As a non-euro country, we are not a born member of the Banking Union, so we have the opportunity to gain from the experiences. Finally, it is definitely a prerequisite that an adherence agreement, which takes the Danish mortgage credit system into account, can be made” Jørgen A. Horwitz says.

Therefore, the Danish Bankers Association recommends that the elements of uncertainty are continually assessed in order to decide if it is in the Danish interest to participate in the Banking Union.